CASTLE TRIMS EXPENSES, PUSHES SOLE-SOURCE DEALS;DEBT-FREE, WELLS GARDNER IS IN THE MARKET TO BUY;VENTURES HELP FUEL GAINS AT B-WARNER AUTOMOTIVE

Enjoying record sales and earnings, A. M. Castle & Co. hasn't felt the effects of an economic downturn-or even of a "soft landing"-on its business of distributing specialty metals.

"We see some signs of slowing but our sales activity hasn't reflected it yet," Chairman Michael Simpson said after the recent annual meeting.

In the first quarter, Castle's revenues jumped 26% to $169.1 million, while earnings rose 128% to $8.2 million, or 74 cents a share.

Last year, sales were up 13% to $536.6 million, while earnings leapfrogged 123% to $15.4 million, or $1.40 a share.

Not all of the earnings growth has come from higher sales. During the past four years, Castle has been on an efficiency tear, reducing operating expenses to 77% of gross profits last year from 88% in 1991. Gross margins of 27.1% in 1994 were up from 25.8% the year before.

Meanwhile, the company has been paying down debt, to $38.5 million at the end of last year from $58.0 million in 1993. The figure should fall another $10 million this year, according to Mr. Simpson.

Many of Castle's customers are capital goods producers that have enjoyed sustained demand for their products as U.S. businesses continue investing in new plants and equipment at a significant pace.

To gird itself for a downturn, Castle has sought out more sole-source "partnerships" with customers.

"Even if it's partnered, when its customers' sales fall, then Castle's volume will fall too," warned Sheldon Grodsky, president of brokerage firm Grodsky Associates in South Orange, N.J.

"If Castle wants to insulate itself against the next downturn, then it has to get into an altogether different business," he added. "Up-and-down cycles come with the territory."

With a wad of cash and no debt, Chicago-based video monitor maker Wells-Gardner Electronics Corp. is prowling for an acquisition.

The company hired Mesirow Financial Inc. in November to identify potential targets, Chairman and CEO Anthony Spier said at the recent annual meeting. The goal is to make a purchase by yearend.

Mr. Spier said that Wells-Gardner, which makes video monitors for the gambling and video arcade markets, is looking to spend "probably no more than $10 million" for a company with revenues of $10 million to $20 million.

The company is scouting both within the entertainment industry and outside.

Declining sales in the coin-operated arcade game business contributed to a loss last year. Revenues fell 7% to $33.4 million, and the company reported a loss of $1.7 million, or 45 cents a share, compared with a loss of $1.8 million, or 49 cents a share, the previous year.

Wells-Gardner recently sold part of its headquarters facility for $677,000, helping eliminate debt and cut costs. Mr. Spier said the sale, combined with improved productivity and price increases, lowered the company's break-even point to $30 million in sales from $40 million a year ago.

Although Mr. Spier is optimistic about 1995, sales in the first quarter fell 19% to $6.2 million. A gain of $403,000, or 10 cents a share, on the building sale produced net income of $148,000, or 4 cents a share, compared with a loss of $1.3 million, or 33 cents a share, in the year-earlier period.

Wells-Gardner also is pursuing new markets, including automated teller machines and department store information kiosks.

Analysts said the strategy appears sound at a time when companies are cutting costs. Buying a department store kiosk, for instance, is less expensive than hiring an employee to answer customer questions, said analyst Jonathan Stone of Adams Harkness & Hill in Boston.

With ambitious goals for growth, Borg-Warner Automotive Inc. is seeking acquisitions and joint ventures in the U.S. and overseas.

Borg last month closed on the $28-million purchase of Federal-Mogul Corp.'s Precision Forged Products division, a maker of engine connecting rods and clutch components in suburban Detroit with $70 million in sales last year.

In January, Borg formed a joint venture with Divgi Metalwares Pvt. Ltd. in Pune, India, to produce components for that country's burgeoning auto industry. The venture, 60%-owned by Borg, could see $50 million in sales annually "within a few years," President John F. Fiedler said at the recent annual meeting.

Executives at Chicago-based Borg-Warner Automotive hope for total sales of $2 billion by 2000, although the company must make more deals to get there.

In 1994, sales rose 24% to $1.22 billion, while earnings jumped 96% to $64.4 million, or $2.75 a share.

In the first quarter, sales climbed 14% to $327.8 million, while earnings rose 28% to $17.6 million, or 75 cents a share.

Although many observers fear the U.S. auto industry is nearing a plateau, Mr. Fiedler forecasts U.S. car and light truck sales of 15.2 million to 15.4 million units this year, up from 15.1 million units in 1994.

Acquisitions most likely will come in emerging markets in Asia, as well as in Europe.

"We want to be more diversified geographically," he said, noting that 40% of all Borg sales are overseas.

Nevertheless, Borg will remain vulnerable to economic cycles.

"Geography generally isn't an insulation against recession," said Bart Naylor, national coordinator for the Teamsters union, a Borg shareholder.

"In this industry, the economies of the U.S., Europe and Japan seem to often move together. For now, however, the company is reporting very satisfying results."